Nexus Mutual (NXM)
Basics * DeFi * Nexus Mutual is a decentralized insurance protocol built on Ethereum which uses a risk-sharing pool allowing anyone to purchase an insurance cover or contribute capital to the pool. "While the long-term goal is to provide a broad range of insurance products, the mutual currently offers insurance on value-storing smart contracts." *Background from DeFi Rate; "Nexus Mutual has been set-up as a company limited by guarantee in the United Kingdom and will operate under a discretionary mutual structure. A discretionary mutual structure means that all insurance claims are paid at the discretion of the Board (i.e. Nexus Mutual members). '' * Goal and first product: ''"Nexus Mutual aims to disrupt the insurance industry by transitioning the power from large insurance companies back to the individual. As such, anyone is allowed to participate as the mutual is wholly owned by its members. Members can contribute Ether (ETH) into the pool in return for NXM, the protocols native token. The mutual’s first insurance product is smart contract covers for purchasing protection for value storing contracts (which are inherent to DeFi and TVL). In order for the mutual to begin processing claims, the fund must meet the minimum capital requirement of 12,000 ETH locked in the fund." At the moment (9-2019) there is about 8K ETH locked, only 3 months after launching. The Token * From DeFi Rate: "The NXM token represents membership rights in the mutual along with the ability to participate in the ecosystem through claims and risk assessment and governance. The token model leverages a bonding curve (or a continuous token model) to determine the price of NXM driven by two main factors: How much capital the mutual has How much capital the mutual needs to meet all claims within a certain probability. A bonding curve is used so tokens can be purchased at any time but at variable prices based on the amount of capital is locked in the mutual and how much of the capital is needed to payout the covers within the system. Moreover, members are entitled to a share of any capital held in excess of what’s necessary to pay potential claims. In other words, the more capital in the mutual, the higher the price of NXM. This is important to note as Nexus Mutual is not conducting a traditional ICO nor is it planning on listing on exchanges in the near future." * From Token Tuesdays (1-10-2019) (Who's writers disclosed that they owned NXM): "Given that Nexus Mutual uses a bonding curve, new token issuance occurs when capital is contributed to the mutual or through rewards for participating in the ecosystem. As such, the NXM token supply issuance can be broken down into these main areas: '' # Initial tokens = NXM set aside for founders and early contributors when the contract was deployed. # Purchased via Token price model = NXM created when purchased via the bonding curve. # Claims assessment rewards = NXM allocated as an incentive to perform claims assessment. # Risk assessment rewards = NXM allocated as an incentive for participating in risk assessment # Governance = NXM allocated as an incentive for participating in governance" # ''For more details check the Nexus Mutual page on their Token Model." NXM Use Cases * "While memberships (4-12-2019) rights is the core value proposition for NXM, the token is also used for governance over improvement proposals, claims assessment on any insurance claims, and risk assessment on smart contracts." * For a deep explanation check their own Use Cases page here. * Again from the DeFi Rate article: "The NXM token is widely used within the ecosystem for a range of utility mechanisms and as the primary asset for accessing a membership in the mutual. Purchasing a cover Users who wish to become a member can do so by purchasing the cover in ETH, DAI or NXM. The system will automatically convert contributions to NXM for users who decide to pay for the cover in ETH or DAI. Once the cover is purchased, a member burns 90% of the cover price in NXM tokens and retains the 10% to be used as a stake when making a claim. Claims assessment Mutual members can stake to vote on claims assessment on whether or not a certain claim should be paid out. Members who vote with consensus are rewarded with NXM whereas users who vote against consensus have their tokens locked for an extended period of time. Lastly, any users who attempt to vote maliciously or fraudulently are subject to having their stake burned and kicked out of the mutual. Risk Assessment When assessing the risk on certain covers, users can signal their confidence in the security of the underlying smart contract by staking NXM. The more NXM staked on an individual cover, the lower the price of the cover. If the cover is purchased, the stakers receives NXM. On the other hand, if a valid claim occurs within a certain period of time (250 days) from the cover purchase, a portion of the stake is burned. Governance The last major utility use case for NXM is its overarching role in the governance of the mutual. NXM is used as a voting weight where simply participating in governance voting earns NXM. When voting in governance decisions, any NXM used is locked for with transfer restrictions applied for a period of time." * From DeFi Pulse: "NXM is also used for governance and incentivization of honest risk- and claim-assessment. For risk assessment, members can stake NXM to show confidence in a particular smart contract's security. Stakers get rewards if cover is bought for that contract, but if the contract is deemed unsafe, the stake may be slashed. For claims assessment, members earn rewards by staking NXM in support of a legitimate claim; for fraudulent claims, stakers are penalized." * From Token Tuesdays (17-12-2019): "In the latest governance call, the core team discussed how NXM staking will soon be integrated into all smart contract covers along with a rework on the rewards distributions. In practice, users who stake NXM stand to earn a portion of all fees relative to their share of the staking pool." * From Our Network #7 (6-2-2020): "The premiums for smart contract insurance are partly determined by the amount of NXM staked on a smart contract system – more NXM staked means cheaper premiums. Risk assessors earn staking rewards from the premiums of new covers taken out on the smart contract system that they staked on. So far 792k NXM (worth $2.2M) has been staked." Usage * "Launching in May 2019, Nexus Mutual has accumulated nearly $1.6M in total locked value (TVL) in a few short months." Which is a bit weird, since on 6-2-2020 it is once again at 1.6M, with a graph showing it was around 0 at July 2019. So something went wrong here. "$1.6M worth of smart contract insurance is currently taken out on Nexus Mutual. Active cover amount is one of the two important KPIs for Nexus (the other being capital pool size). The growth in cover amount in Dec and Feb were from large covers taken out for Flexa and ParaSwap. Breaking down the active cover amount by smart contract system. Flexa ($589k), Compound ($314k), ParaSwap ($265k), and Uniswap ($210k) currently have the most money being insured. The current capital pool size (insurance fund backing claims) is $2.6M or 13.1k ETH. This is the second of the two important KPIs for Nexus. Note the USD graph has been fluctuating due to the volatile price of ETH, but the capital pool which is denominated in ETH has been steadily growing." Upgrades and Roadmap * From Token Tuesdays (3-12-2019): Upgrade around 11-2019 "Nexus Mutual implemented a dynamic minimum capital floor. This upgrade creates a mechanism for increasing cover capacity when the mutual has excess capital. Prior to this update, the Mutual programmatically set the max capacity per smart contract at 20% of the minimum capital requirements. This meant that no single smart contract could represent over 20% of what the Mutual could cover and is used to ensure that the mutual has a high probability of paying out all future claims. With that, whenever there’s excess capital (in the form of MCR%) over 130%, the mutual increases its capacity by 1% per day by lowering MCR% and increasing MCR. While most members in the mutual recognized this would be a short-term detriment to price, it was vital for the prospective long-term growth of the Mutual at large. Since the introduction of the dynamic minimum capital floor (DMCF), the mutual has increased the mutual’s minimum capital floor by “14% over the past few weeks”. In addition, according to Nexus Tracker, the mutual has seen a 16.38% increase in active cover amounts (denominated in ETH) to over 4,710 ETH of active covers." Roadmap Secondary Purchases One of the biggest needs for Nexus Mutual is the ability to reach more prospective members who would benefit from insuring their assets locked in DeFi applications. With this, the team is currently exploring implementing secondary purchases into third-party applications. Imagine lending out Dai on Compound and upon signing the transaction, there was a call-to-action asking users if they would like to purchase insurance coverage on their assets being lent out. Implementing this feature in a handful of the prominent DeFi applications would widely increase the accessibility for the mutual at large. In order to make third-party integrations possible, the mutual will have to enable the option to operate memberships via smart contracts. By doing so, this would drastically increase integration options from third-party applications and allow aggregator-like projects to programmatically buy covers on behalf of users. Token Economics and Incentive Reworks As it stands today, users looking to participate in risk assessment are subject to queues for receiving rewards based on cover purchases. With that, users must lock their NXM tokens for 250 days and will only receive rewards once they’re first in the queue. Rather than relying on a queue-based rewards system, the team is exploring a new distribution model through a pooled reward system. With this system, risk assessors will be rewarded on a more consistent basis with a pro-rata rate based on the amount staked. The hope with implementing this type of rewards system is to encourage more staking activity and significantly reduce the barriers to entry when it comes to knowledge on risk assessment. Investment Earnings One of the more interesting things that the team is currently exploring is leveraging the existing capital pool to earn investment returns on the float. As being discussed today, this is viable in two ways: (1) integrating the Dai Savings Rate (DSR) or (2) Staking in ETH 2.0. While third-party lending applications, like Compound, will likely offer higher returns, it’s too risky for a mutual whose purpose is to insure these applications in the first place. With $1.5M currently locked in the mutual and growing, the potential for earning investment returns on the capital pool will increase over time. By integrating the Dai Savings Rate or staking in ETH 2.0 (or both), Nexus Mutual members can receive a passive income through price appreciation of the NXM token as the capital pool increases from investment returns over time. This could be vastly important in ensuring the long-term growth of the capital pool as this mechanism would empower the dynamic minimum capital floor to increase coverage capacity over time." * From an interview (27-1-2020) with the founder: "There are quite a few things coming up in the coming months, such as a revised staking approach which is designed to enhance reward levels and simplify things from a user perspective. It’s more of an enabler but is a key building block that will allow to expand the product range in the future, things like slashing risk on staking networks and even centralised exchange hacks are some popular ones we’re looking into. We’re also looking to enable investment returns on our pool of assets, which all of our members will benefit from, we just have to be careful where we put the funds, as we provide cover against DeFi protocols. And, we also have some interesting developments on the integrations side which will make things much better from an end customer perspective." Pro's and Con's From Token Tuesdays (1-10-2019) (Who's writers disclosed that they owned NXM): Pro's: * "Assuming that decentralized insurance becomes rather popular in the coming years, there’s a massive amount of upside for prospective investors looking to get into Nexus Mutual." Con's: * Nexus Mutual only covers smart contracts based on Ethereum. * Asks KYC * "With the current framework in mind, potential buyers are largely limited to sophisticated traders either (i) supplying large sums of capital or (ii) very technically familiar with DeFi and actively participating in a number of different services including margin trading or lending. As such, it remains unclear whether or not Nexus Mutual would be a preferred insurance solution for anything outside of niche digital asset uses." * Still has centralized 'fail switches': "The mutual cannot cover its own smart contract in the instance of a hack. This makes sense however, it would require separate insurance funds to cover the mutual and the team must be highly cautious in assuring that their smart contract(s) are audited and secure. With this, the mutual currently has some emergency features (i.e. centralization features) to protect users during the early stages. The list of emergency controls can be seen here. While these controls do provide a certain degree of peace of mind, they also strongly challenge the notion of “decentralization” posed by the project from a high level. However, this is fairly common practice in DeFi today and the team does plan on removing these features once the Mutual has been tested and battle-hardened." * Growth in Nexus Mutual has been a bit slower (12-2019) than expected. Team, investors, partners, etc. Team * From DeFi Rate: "Currently, the Nexus Mutual team is around 8 members led by Hugh Karp who has over 15 years of experience in the insurance industry, including the role as CFO of UK Life Operations. Other notable team members include Board Member, Gareme Thurgood, who has 17 years of extensive experience launching mutuals in the UK and prominent Ethereum community member, Evan Van Ness." * Hugh Karp; founder & Board Member * Ish Goel; CTO & Board Member * Gareme Thurgood; Board Member * Evan Van Ness; advisor * Solidified Investors * From DeFi Rate: "The company has raised an undisclosed amount from blockchain-based venture capital firms such as Kenetic, KR1, MilliWatt and 1kx."Category:Coins/Tokens